Briefing Note for Property Teams
Moratorium debts and rent arrears
The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 is coming into force on 4 May 2021. It sets out that a person who is in debt can request a debt moratorium from an approved debt advice provider, essentially given them breathing space and time from a creditor to allow repayment of those debts. It applies to most debts accrued before or after 4 May 2021 and it will apply to rent arrears. It will apply to individuals only and will relate to both residential and commercial property. (NB: it is different to a Part A1 moratorium under the Corporate Insolvency and Governance Act 2020 coming into effect from 26 June 2020 which is specifically for corporate entities and is not covered by this briefing note.)
If a moratorium is granted, it will be registered. It is only granted where a debtor can prove that they will pay their debts but needs some respite in order to do so and to prevent their debt situation from getting any worse. It will be registered and in effect for 60 days from its start date when it will then end. It can also end if a debt advisor or court cancels it or if the debtor dies during the moratorium period.
For landlords and tenants, during a moratorium, the following apply:
- A debtor tenant cannot be contacted regarding the debt (unless it is not subject to a moratorium);
- Interest nor costs can be incurred on a debt;
- Landlords are precluded from serving section 8 notices on the grounds of non-payment of rent (but they can if the breaches are related to other non-debt matters);
- A possession order cannot be obtained relating to that debt, neither can it be enforced if already obtained;
- The strength of the moratorium cannot be challenged by a legal action brought against the person subject to it. This would protect licensees and tenants excluded under the Housing Act;
- Section 21 and 8 notices can still be enforced and served but the latter only on other grounds not for non-payment of rent.
- A tenant must, however, continue to pay their rent under a moratorium. If they do not, the landlord can apply to the relevant debt advice organisation for cancellation of the moratorium or the court for it to be ended and legal action brought against the debtor tenant.
A debt moratorium is not an instrument to delay the inevitable. It is used to give a debtor breathing space to allow them to pay their debts and there must be an ability to pay those debts.
The moratorium also includes provisions for those suffering from a mental health crisis. Whilst a mental health practitioner is required to confirm the mental health circumstances, the moratorium enables the recipient space and time to seek treatment for their health whilst protecting them from their financial situation. The rules on mental health crisis moratoriums differ to breathing space moratoriums. This briefing note does not cover the former in detail.
The impact the new legislation is likely to have on landlord and tenant matters is the increased use of section 21 notices. Landlords will also want to look into issuing notices and proceedings prior to the commencement date of 4 May 2021, albeit their ability to do so needs to be considered in light of the Coronavirus relief provisions.